Another District Court Addresses Viability of “Continuing Misappropriation” Under the Federal Defend Trade Secrets Act

The Federal Defend Trade Secrets Act (DTSA) provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). The DTSA applies to any trade secret misappropriation for which any act occurred “on or after the date of the enactment” of the DTSA. See P.L. 114-153 § 2(e).

A Missouri district court recently held that the DTSA applies to trade secret misappropriation that continues after the DTSA enactment date (May 11, 2016)—even if the misappropriation began before the enactment date, see Roeslein & Assocs. v. Elgin, Civ. No. 17-1351(JMB), 2019 U.S. Dist. LEXIS 6981, at *36 (E.D. Mo. Jan. 15, 2019), adding to mounting precedent concluding the same. In Roeslein, developers of energy production facilities sued one individual (a former employee) and three corporate defendants for violation of the DTSA, among other claims. The corporate defendants moved to dismiss claims asserted against them under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that the plaintiffs’ DTSA claims were not cognizable because the plaintiffs failed to allege misappropriation on or after the DTSA’s enactment date. The court granted-in-part and denied-in-part the motions, leaving the DTSA claims intact.

The Amended Complaint alleged that individual defendant Elgin revealed trade secret and confidential information he acquired during his employment. The plaintiffs further alleged that the defendants used the plaintiffs’ confidential information to construct a facility in New Mexico and filed a patent application containing the plaintiffs’ IP and trade secret information.

After noting two decisions, Brand Energy & Infrastructure Servs. v. Irex Contr. Grp., Civ. No. 16-2499, 2017 U.S. Dist. LEXIS 43497 (E.D. Pa. Mar. 23, 2017)) and Syntel Sterling Best Shores Mauritus, Ltd. v. Trizetto Group, Inc., 2016 U.S. Dist. LEXIS 130918 (S.D.N.Y. Sept. 23, 2016) finding viable so-called “continuing misappropriation” claims, the court ruled that “the DTSA applies to a trade secret misappropriation that continues after the DTSA’s enactment date, even if the misappropriation began before the enactment date.” See Roeslein & Assocs., 2019 U.S. Dist. LEXIS 6981, at *35-36. The court pointed to the alleged use of the plaintiffs’ trade secrets in the operation of the defendants’ New Mexico facility that continued to occur “after the DTSA enactment date;” the continued prosecution of a patent application alleged to contain the plaintiffs’ trade secrets after the DTSA enactment date, and a 2017 presentation made by defendant Elgin. See id. at *33 & 38; see also Am. Compl. ¶¶ 106-107, 119.

The Missouri court further reasoned that unlike the Uniform Trade Secrets Act (“UTSA”), which expressly states that it does not apply to either (i) a misappropriation occurring prior to the effective date or (ii) a continuing misappropriation that occurs after the effective date, the DTSA contains no such language. Roeslein, 2019 U.S. Dist. LEXIS 6981, at *37. Finally, the court cited eight additional district court decisions concluding that the DTSA applies to continuing acts of misappropriation, even if misappropriation began before the DTSA’s effective date. Id. at *37-38.

One takeaway from the decision is that plaintiffs should plead in their complaints at least one act after May 11, 2016 to support a DTSA claim—by date. In contrast, defendants should scrutinize carefully the activity relied upon to support a DTSA violation.

Wendy R. Stein is a Director in the Gibbons Intellectual Property Department. She litigates trade secret cases in federal court and has successfully secured restraints pursuant to the Federal DTSA.
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